Good day, ladies and gentlemen, and welcome to TRACON Pharmaceuticals Second Quarter 2021 Earnings Conference Call. At this time, all callers are in a listen-only mode. After the speakers' prepared remarks, we will conduct a question-and-answer session and instructions will be given at that time.

During today's call, we will be making certain forward-looking statements, including statements regarding expected timing of clinical trials and results, regulatory activities, future expenses and cash runway and/or development plans and strategy.

These statements are subject to various risks that are described in our filings made with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2020, and subsequent quarterly reports on Form 10-Q.

You are cautioned not to place undue reliance on these forward-looking statements, and we disclaim any obligation to update such statements. Now, I would like to turn the call over to Dr. Charles Theuer, President and CEO of TRACON Pharmaceuticals. Dr.

Theuer?.

An Antidote for the Billion Dollar Drug Problem that is authored by TRACON senior management and is now available for preorder on Amazon. The book details the advantages of TRACON's CRO independent product development platform and profit share deal structure that provides for rapid and high quality development of novel drug candidates.

We believe our platform serves as a compelling solution for companies who wish to access the US pharmaceutical market and retain a substantial share of their product's profitability. In July, we raised approximately $13.5 million in net proceeds in an underwritten common stock offering.

With the capital raise, we estimate that our cash runway now extends into 2023. This provides us with a cash runway for more than a year past initial interim ENVASARC efficacy data expected at the end of this year and past expected final ENVASARC data expected in 2022.

We expect our enhanced balance sheet will increase the impact of important 2021 milestones and provide capital to execute clinical trials of potential new drug candidates we may add to our pipeline. At this time, Scott will provide an update on our financials. .

Thank you, Charles. And good afternoon, everyone. TRACON's research and development expenses were $3.1 million and $5.4 million for the three and six months ended June 30, 2021 respectively compared to $2.2 million and $4.2 million for the comparable periods of 2020. The increase was related to enrollment in the pivotal ENVASARC trial in 2021.

General and administrative expenses were $6.1 million and $8.8 million for the three and six months ended June 30, 2021, respectively, compared to $2.1 million and $4 million for the comparable periods of 2020. The increase was related to legal expenses for the now stayed Delaware case and ongoing arbitration with I-Mab.

Importantly, we expect Q2 of 2021 to be the high point for G&A expenses this year. Our net loss was $8.9 million and $14 million for the three and six months ended 2021, respectively, compared to $4.5 million and $8.5 million for the comparable periods of 2020. Turning to the balance sheet.

At June 30, 2021, our cash, cash equivalents and investments totaled $25.6 million compared to $30.4 million and $36.1 million at March 31, 2021 and December 31, 2020, respectively. With net proceeds of approximately $13.5 million raised in July, we expect our current capital resources to be sufficient to fund our planned operations into 2023.

With that, I will turn the call back over to Charles..

Thank you, Scott. To recap, we continue to execute our clinical development planned around our lead product candidate envafolimab and have made substantial progress in the ENVASARC pivotal trial.

We have now completed each of the two DMC safety reviews and expect to complete the initial interim efficacy assessment and summarize top line data prior to year-end.

We believe the ENVASARC trial provides a potential faster market opportunity to deliver envafolimab to sarcoma patients in significant need of a new therapy as expeditiously as possible.

Importantly, we believe our recent capital raise will be sufficient to fund the company into 2023, which is more than a year following expected initial interim ENVASARC efficacy data and past expected final ENVASARC data, which could demonstrate the potential for envafolimab to rapidly transform the standard of care for refractory sarcoma patients.

We also continue to expect to leverage our unique product development platform and profit share deal structure to further enhance our pipeline and leverage our ability to execute clinical trials at low cost, and thereby avoid the unnecessary expense of CRO conducted clinical trials.

We look forward to providing further updates in the coming months, and we remain confident that we have the right strategy in place to deliver on our development and business plans for the benefit of patients and shareholders. Thank you for your time and attention. And we are now available to answer your questions..

[Operator Instructions]. Our first question comes from the line of Maury Raycroft of Jefferies..

Congrats on the progress.

Maybe first question is, I think on the first quarter call, you said that you planned to have all 25 sites open for ENVASARC by the end of 2Q? And so, I'm just checking to see if you have opened other remaining sites? And is there anything else you can say on enrollment and maybe discontinuation rate or safety at this point?.

We've been opening sites, as we speak. We actually have 26 sites initiated, which is actually our target for the entire study. I will say, Maury, there has been a lot of interest at some sites that were not initially included in the 26. So, you actually might see some more sites come on beyond that. But right now, we've opened 26 sites. Our goal is 25.

We did open 26 so far. And in terms of accrual, we're on track with respect to having 36 patients in this quarter, which would then allow the interim efficacy analysis to be delivered by end of this year. In terms of safety, I can tell you that we've had now two safety reviews.

There were no comments with respect to changing the study protocols, either the three week or 12 week period after enrollment of the 20th patient. I would say, in general, we've seen envafolimab as expected to be well tolerated as a single agent. And also, I would say it's been very well tolerated with Yervoy as a dual checkpoint inhibitor strategy..

Are you seeing any difference on the profile versus, I guess, with potentially some benefit on colitis or even ISRs [indiscernible]?.

I would say just, overall, both as a single agent, Maury, and in combination with Yervoy, both cohorts, it's been a very tolerable regimen. I won't get into specific details other than to say, as expected, envafolimab as a single agent and also with Yervoy has been a very tolerable drug..

The other question I had was just on, we noticed on ct.gov that two new Phase IIs posted by 3D, one is in solid tumors and the other one is in biliary tract cancers.

And I was just wondering if you can provide any more insight into the strategy behind those studies and if they could factor into trade plans, development plans? And will they be enrolling any patients in the United States?.

The biliary tract cancer trial, I think, is relevant for the following reason. So they are currently enrolling a trial in biliary tract cancer in China. And they have orphan drug designation for biliary tract cancer designation in the US. So, we expect that they'll probably have a readout on that trial in China maybe in a year or two years.

And I think on that clinicaltrials.gov posting that you mentioned, I think the initial startup date is roughly in the time period where you would expect final data from the Chinese study. So, we don't think it'll have a major impact anytime soon with respect to the US label.

And I think it'll be important to see what the data is coming out of China initially in order to assess the impact of the US potential playing trial..

Our next question comes from the line of Jason McCarthy of Maxim Group. .

For my first question, regarding the positive NCI review announced last week, I was just wondering if you could comment on whether you guys saw any differences observed in terms of safety and tolerability between the subset of patients treated with envafolimab in a single agent capacity versus those treated with the combination of enva and Yervoy..

I would just say, in both cases, the drug as a single agent or in combination with Yervoy was very well tolerated. I would also mention that, as expected, when you're receiving two checkpoint inhibitors rather than one, you're going to see some more adverse events with respect to Yervoy's known side effect profile, and that was expected.

And given was expected, didn't change with respect to how the protocol is being implemented..

Can you just share some color on when we might potentially be expected to see additional data readouts with respect to your TRC102's platform?.

I think with respect to TRC102, I think, in fourth quarter, we'll see the NCI present data from a study that's been ongoing for a couple years, which is a study of TRC102 and Temodar in patients with solid tumors.

It was initially a Phase I study, but based on activity seen in ovarian cancer, colorectal cancer and lung cancer in the Phase I portion, they enrolled three separate expanded cohorts.

And they've reported already in the colorectal cancer cohort, which is actually very nice data to help really confirm the fact that MGMT methylated patients seem to be particularly sensitive to Temodar plus TRC102, and that was the data published in Cancer Cell last year that corroborated data we had in GBM from earlier in 2019.

This year, before end of the year, I would expect to report data on the lung cancer cohort of treatment with Temodar/TRC102. So that's the data I expect to see. I'm not sure which conference, but I do expect to see those data this year..

Congrats on all the progress. .

Our next question comes from the line of Ed White of H.C. Wainwright..

Just a question on the TJ004309 arbitration and the impact on SG&A expenses, what were the legal expenses, if you could break those out? And you said that the second quarter should be the high point of the year.

Do we expect to continue to see litigation expenses throughout the year and this is the highest quarter? Or do they go away? How should we thinking of that?.

To answer your first part, we haven't broken them out. But you could assume the increase from last year, the majority of that would be related to legal expenses in Q2. And then, going forward, we expect Q3 and Q4 to be more similar to Q1 because the majority of those expenses were due to the Delaware lawsuit.

And since that was stayed, we won't have expenses for that going forward. And the ongoing ones are just related to arbitration as they were in Q1..

How should we be thinking about arbitration? It sounds like it's a timing matter and a question of $9 million. It seems as if they do want to get out of the agreement, in which case they would owe you $9 million according to the contract – according to you guys.

Is that the end of it? Or is there a chance that you can continue to develop past Phase I?.

With TJ004309, as we mentioned in the call, there's a revenue sharing provision with respect to any deal that I-Mab does around TJ004309 prior to terminating the agreement. For instance, we may believe that the deal they did with KG Bio has triggered a payment under that stipulation in the agreement.

But then, at some point, for instance, at the completion of Phase I, they are entitled to terminate the agreement. And if they serve a termination notice that's valid at that time, we will, obviously, respect that.

And until that time, we would expect to be a part of any revenue sharing deals that they would do, including the previous one they did with KG Bio. .

Just a question on enrollment. So, you've given a timeline there.

I was just wondering, with the 26 sites and maybe more, have any of them been impacted by the Delta variant or indeed expect to see any kind of impact to them before you reach full enrollment?.

I would say, right now, we haven't seen a significant impact of COVID, I'd say, whether it was COVID alpha or COVID delta. And I would say that because these are sarcoma patients that have very few treatment options that need therapy.

And so, the centers have been used to dealing with COVID restrictions in terms of how they space out patients in the waiting room, for example. But they have to continue to treat these patients. And so, I don't think we've seen a major impact, either COVID alpha during the initial portion of startup for ENVASARC, or even more recently COVID Delta.

It just hasn't come up with investigators. I haven't specifically asked about it, but it just hasn't even come up on investigator calls as an example. That said, we'll keep a close eye on things. But right now, it hasn't been an issue. We have protocol guidelines that allow patients to be vaccinated on study. And we encourage that.

So, we're doing everything we can to protect patients as well..

Our next question comes from the line of Matthew Cross of Alliance Global Partners..

I have two quick questions related to ENVASARC. First of all, we're kind of asking a different question directed at enrollment building on these guys.

I was curious to get some additional granularity given that you stated both this week and I think back in June that at least 10 patients per arm or at least 20 patients total had been analyzed for safety in ENVASARC. That's, I guess, just over half of the 36 patients that you ultimately need for this interim.

Curious if the similarity in terms of numbers between those two safety updates over a couple of months – seems like the differentiating factor is the time for follow up. But now that's three months, I was just hoping we could break that down a little bit.

Have more than, I guess, that number – if we say 20 plus been enrolled, but simply not followed for the three months that's been most recently alluded to in the safety analysis? Or should we expect kind of a bolus of patients to be enrolled imminently to support the 36 patients that you're hoping to get by the end of this this quarter? And then secondly, I just wanted to clarify, related to the interim efficacy assessments, that these are effectively futility determinations, more or less, I would imagine.

If ORR is above 11% for either arm at either of these readouts, and we'll start with the first, obviously, that would, in my view, be essentially a positive indicator for the outcome of the full trial, but I'm imagining that you would not be – that that wouldn't be sufficient to file or that you wouldn't take data on 36 patients to the FDA for an approval.

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Just to clarify on the on the safety review. These are mandated reviews by the protocol such that they occur at specific time points after enrollment of the 20th patient. So, to be clear, we've enrolled 3far more than 20 patients as of the current date.

And we've done that, so that allows us to then present the interim efficacy data on 36 patients by year-end given the three-month delay in getting all the scans for those patients. So, to be just crystal clear, 20 patients were enrolled as of May.

And once the 20th patient enrolled, three weeks after that patient was enrolled was the first DMC safety analysis. 12 weeks after the 20th patient was enrolled was the second DMC safety analysis.

So it's done on the 20 patients enrolled with a fixed time period between that patient enrolling and then aggregating all the safety data from the treatments that they have received.

So, to be clear, patients have been enrolling since May, after 20 patients were in, to the point where we can confidently project that we'll have 36 patients in this quarter, for which we'll have efficacy data that will allow us to then do the first interim efficacy assessment and report those data publicly.

With respect to the efficacy analysis, as I alluded to in the script, the futility rule is again specified by the protocol that we have to have at least one confirmed response in the first 18 patients who've had at least three months of scans within each of the two cohorts in order to continue that cohort.

As you pointed out, the efficacy bar to continue enrollment is different from the primary endpoint goal, which is an 11% response rate. The only way we would terminate this trial early would be if we achieve the nine anticipated responses minimum bar before we enroll 80 patients.

And then, only in that case would it be after we discuss those data with the FDA. So, for example, we have nine responses, let's just say for sake of argument, in 40 or 50 patients, which obviously would meet the bar of the study, because nine of 80 is an 11% response rate, then we could think about approaching the FDA.

So that will be determined in real time. .

[Operator Instructions]. Our next question comes from the line of Nick Abbott of Wells Fargo..

Congrats on the progress, Charles.

And if I place a preorder for the book, can I get the first question next quarter?.

Only if you buy one for every family member and relative..

In relation to that last question, just to make sure I understood your answer, clearly, you do see a potential opportunity for early filing.

In relation to that, can you talk about securing supply of commercial enva in the US? And also, presumably, you intend to reference the safety data that's been submitted to the regulatory body in China?.

With respect to the commercial production, our partners in China – and Alphamab is really the commercial production partner. They're in the process of producing commercial scale for the anticipated launch in China. They filed for approval in January – or, excuse me, December. They got priority review in January.

So we expect they'll be approved this year. And then that will launch – actually, their commercialization partner in China is Simcere, which has a large commercial sales force there already. So, we would expect to use the product that they will produce at commercial sale from China as part of our commercial, if you will, supply.

The appropriate time which, again, is late 2023 as the earliest projected launch period. I think it's a big advantage for us because it should already be commercially available in China, well in advance of when we would market and need supplies in the United States. So, that's I think an important consideration. Your second question was about the….

About the safety database?.

We're actually discussing that internally. There's an incredible safety database available. Our partners have dosed 700 patients with the drug as a single agent, some with chemotherapy as an example.

That said, our new head of regulatory, Brenda Marczi has made it clear that you don't have to necessarily include every patient data point from studies done outside your IND in order to successfully file a BLA. So we're discussing what would actually be the optimal BLA filing package.

And because we have orphan drug designation, especially, we may not need to, for instance, include every safety data point from trials done outside of our IND. So that's something that – stay tuned on that discussion.

But I think it's an important point that we're discussing in light of our new head of regulatory, Brenda Marczi, who has a lot of experience filing and interacting with the FDA around these types of questions..

Just going back to Alphamab, has that facility been subject to an FDA visit and review?.

Yeah, you could assume it hasn't been FDA inspected with respect to – it hasn't been a basis for filing for approval. I would say, without breaching confidentiality, it has been inspected by international regulatory authorities. So, I could tell you that, Nick, and we remain confident of their ability to produce commercial supplies for us as well. .

In terms of the second immunotherapy assay you're considering, can you provide any commentary about how far along you are in securing that asset? So you kind of mentioned that you might want to use that for the dox combo trial starting this year, which clearly would need to have an IND approved in the US, I'm assuming, or at least the IND ready unless you consider adding that later.

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We're looking at several assets at this time. And we've been in discussions with several companies for a prolonged period of time, I would say our goal still remains to get one or two deals done this year.

To your point, it could be that it's an IND ready asset, whereby we'd still do an initial safety trial before combining, for instance, with enva and dox. So if that's the case, we could do the enva dox initial combo, and then add that on in a little bit later timeframe.

Some assets have already, for instance, have clinical data, whether it's an open US IND or an IND, for instance, in Australia. Could more logically plug straight into a combination trial with dox and enva.

So I think there are potential assets on the board that are in both those categories, Nick, and we're excited to continue those discussions with the hope of licensing one or two more assets this year..

Last one for me, and it sort of builds on our previous conversation. Do you wish that you had just sort of given TJ004309 back and collected the $9 million? I know there's not a –I'm assuming you have the option to do that. Obviously, I-Mab doesn't have a contractual right to do that.

Or do you feel like that the potential payments you can get if they enter into additional commercial collaborations considerably – are of considerable value than perhaps what you make that might be?.

I think the disputes are around two agreements. The TJ004309 agreement and the bispecific antibody agreement. And our position is to respect the agreements, to respect the contractual requirements and obligations in the agreement. And that's going to be our position going forward and we'll continue to move in that direction.

To your point, I think if you think about on a pure business standpoint, just from TJ004309, you could potentially terminate and take $9 million, but it wouldn't be illegal termination.

So, given there's a dispute already going on with that agreement and also the bispecific agreement, we just didn't feel that was the right course of action for our company..

On the base excision repair inhibitor, given this resurgence of interest in synthetic lethality, I'm kind of surprised there's not been more inbound interest in companies wanting to add what is a clinical asset with a known safety profile or the alternative that you've not looked to bring in an asset compared with base excision repair inhibitor?.

I think we really want to see with TRC102 – I think what will really distinguish the asset is randomized data. And I do feel good about what will happen this year with respect to TRC102 being advanced into a randomized trial in advanced localized lung cancer that will definitively prove whether it's active or not.

I think we've had very encouraging single arm data. But we need randomized data. I think those data will then elevate the profile of that asset, both with respect to external potential partners, but also internally in terms of how we prioritize the asset. So I think to your point, it's an undervalued asset.

But I do think the wheels are turning which will generate data that could make it much more appreciated by potential external partners. .

Our next question comes from the line of Soumit Roy of Jones Trading..

The first one is on the enva and dox. And apologies if I missed that point. Are you planning to start the front line trial this year? And another one is on the burn and the financial guidance. You're thinking cash into 2023, but it looks like you're burning about $28 million to $30 million a year.

And you're also considering in license for the IO assets.

So are there any milestones we should be modeling in our model?.

With respect to your first question on enva and dox, we do expect to see that trial open this year with respect to enva/dox. Again, it could be a third agent in there as well, for Nick's question.

But the initial stated enva/dox, we do expect to initiate sites this year I think there's a lot of interest in that trial, I will say, from initial sites that are part of the ENVASARC trial, a lot of a lot of them would like to be part of a frontline trial.

And those would be subtypes of sarcoma beyond UPS, MFS, to be clear, and so that's definitely something of keen interest to investigators. With respect to spending, I think, as Scott pointed out, we expect the peak in G&A to be this year related to the now stayed Delaware Chancery court case.

And then following that, in quarter three, quarter four, we'll see the spend be more similar to quarter one. And so, we've taken that into account to project the current cash position to get us to 2023. Now, you did mention we are looking for new assets.

But we're looking for new assets, we're looking to do it in a way that leverages our product development platform of CRO independent research that would be consistent with prior agreements whereby we haven't paid significant upfronts and we haven't paid significant milestones, but what we give our partners is that really, really beneficial profit share on the back end and our motivation to move their product forward very quickly.

So, really, the cost, when we think about a new asset is the cost of actually doing the trial. And that brings in play what we have in terms of capabilities here and our special sauce, so to speak, is our ability to execute trials. To do a 30 patient trial, we estimate the cost is about $3 million. And that's spent over about eight quarters.

So when you start breaking that down, you're talking about incremental spend that's almost immaterial with respect to our overall cash expenditure. So, we can still license assets in, employ our platform, do Phase I and early stage development without a significant spend in terms of the burn.

I would point out that we're not including any non-dilutive capital to come in, as we discussed earlier, for instance, from partners opting to terminate current agreements around TJ004309. But even without those non-dilutive capital payments, we're confident of our position to get into 2023.

And I know a lot of companies couldn't make that statement, Soumit, but, again, it plays into the fact, when you're CRO independent and you have really no significant manufacturing responsibilities because those are done by your partner, your developmental costs become incredibly – or developmental expenses become incredibly low. .

Congrats on the progress..

[Operator Instructions]. There are no further questions at this time. I will now turn the call over back to you Dr. Charles Theuer, President and CEO of TRACON Pharmaceuticals, for closing remarks..

Thank you, everybody, for your attention and for your questions. We look forward to speaking again next quarter. Stay safe..

This concludes today's conference call. Thank you again for participating. You may now disconnect..